Yields Mixed as Market Sees Higher Demand for FGN Bond
The average yield on Treasury bills remained steady but there was increased demand for bonds, causing prices to jump while yields moderated. Bond investors’ cherry-picked attractive instruments across the curve as Debt Management Office (DMO) announced a plan to issue N480 billion instruments in the first quarter of 2022.
At the open market operation (OMO) bills auction conducted by the Central Bank of Nigeria (CBN) on Thursday, the result shows that spot rates across tenor were steady, though demand was heavy.
The fixed income market will see about N480 billion issuance planned by Debt Management Office (DMO) in the first quarter. Some analysts hope to see some sort of upward yield repricing to match bondholders expectations in 2022 amidst a relatively high inflation rate.
Short term rates jerked as liquidity in the financial system strained. Today, the average interbank rate spiked. Funding pressures for CBN’s weekly OMO worth N20.00 billion and FX auctions offset inflows from OMO maturities of N59.50 billion, Cordros Capital said in a note.
The overnight lending rate increased by 0.50 per cent to close at 14.75 per cent as against the last close of 14.25 per cent, according to FSDH Capital in a note. Also, the Open Repo (OPR) rate also increased by 0.50 per cent to close at 14.00 per cent compared to 13.50 per cent on the previous day.
In the coming week, Cordros Capital analysts are expecting the overnight lending rate to trend northwards as the CBN would likely mop up the pent-up liquidity emanating from FGN bond coupon payments worth N105.17 billion and OMO maturities worth N88.41 billion.
In the secondary market, Nigerian Treasury Bills ended on a flat note with average yield across the curve remaining unchanged at 4.54 per cent, investment banking firms’ notes show. The average yields across short-term, medium-term, and long-term maturities remained unchanged at 3.50 per cent, 4.11 per cent, and 5.21 per cent, respectively.
Analysts at Cordros Capital are expecting the yield on T-bills to inch higher in the coming week as participants sell-off instruments to obtain liquidity for short-term obligations.
In the open market operations (OMO) bills market, the average yield across the curve closed flat at 5.62 per cent. The average yields across short-term and long-term maturities remained unchanged at 5.52 per cent and 5.71 per cent, respectively.
At the primary market auction for OMO Bills held on Thursday, CBN sold bills worth ₦20.00 billion across the 96-day (₦5.00 billion), 180-day (₦5.00 billion), and 355-day (₦10.00 billion) tenors.
Detailed result of the auction shows that the stop rates were unchanged at 7.00 per cent, 8.50 per cent, and 10.10 per cent, respectively. The auction was oversubscribed, indicating a subscription level of 548 per cent (₦109.67 billion). Demand was skewed towards long tenor maturity bills with bid-to-cover ratios settling at 2.90x (96-day), 5.21x (180-day), and 6.91x (355-day).
Elsewhere, FGN bonds secondary market closed on a mildly positive note today, as the average bond yield across the curve cleared lower by 2 basis points to close at 11.83 per cent from 11.85 per cent on the previous day.
Average yields across short tenor and long tenor of the curve decreased by 8 basis points and 1 basis point, respectively. However, the average yield across the medium tenor of the curve remained unchanged.
The 27-APR-2023 maturity bond was the best performer with a decrease in the yield of 23 basis points. Going into next week, FSDH Capital said in its note that the secondary bond market is likely to remain subdued as investors are expected to focus on the primary market auction.
In the short term, analysts at Cordros Capital are expecting frontloading of significant borrowings for the year to result in an uptick in bond yields as investors demand higher yields in the face of elevated supply.
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